India Emerges as Global Manufacturing Hub with Remarkable Growth

General Studies Paper -3

Context: India’s manufacturing sector has witnessed remarkable growth this year, underscoring its transformation into a global powerhouse.

About

• Toy exports grew by 239%, and mobile phone production by 600%.
• By 2024, India ranked among the top four nations with the largest foreign exchange reserves, exceeding $700 billion.
• In the Global Innovation Index 2024, the country climbed to 39th place up from the 81st in 2015.

India’s Manufacturing Sector

• Manufacturing exports have registered their highest ever annual exports of US$ 447.46 billion with 6.03% growth during FY23.
• By 2030, the Indian middle class is expected to have the second-largest share in global consumption at 17%.
• India’s gross value added (GVA) at current prices was estimated at US$ 770.08 billion as per the quarterly estimates of the first quarter of FY24.
• India’s e-commerce exports are projected to grow from US$ 1 billion to US$ 400 billion annually by 2030, aiding in achieving US$ 2 trillion in total exports.
• India’s smartphone exports surged by 42% in FY24, reaching US$ 15.6 billion, with the US as the top destination.

Challenges faced by India’s manufacturing sector

• Technological gap: Indian manufacturing lags in the adoption of Industry 4.0 technologies such as automation, IoT, and AI, reducing global competitiveness.
• Skill Gap: There is a significant gap between the skills of the available workforce in India and the needs of modern manufacturing.
• Supply Chain Disruptions: High dependency on imported raw materials and components, especially from China, exposes the sector to global supply chain disruptions.
• Governance Issues: Frequent changes in industrial policies along with delays in their implementation create uncertainty for investors.
• Global Competition: India faces stiff competition from countries like China, where manufacturing costs are lower due to economies of scale and more efficient infrastructure.

Initiatives taken by Government

• Goods and Services Tax (GST): The introduction of GST streamlined indirect taxation and automated tax compliances, easing the burden for businesses.
  • Reductions in corporate taxes along with simplified construction permits and the abolition of archaic laws were implemented to improve the ease of doing business.
• FDI policy: Nearly all sectors allow for 100% FDI, except for certain prohibited sectors.
  • For example the defence industry allows 74% FDI under the automatic route and 100% under the government route.
  • Initiatives like Make in India and Digital India, improved infrastructure and ease of doing business, supported by various incentives, have stimulated domestic manufacturing and attracted foreign investments.
  • Make in India Mittelstand (MIIM) , a collaboration between India and Germany, focuses on driving innovation and enhancing economic cooperation by encouraging small and medium-sized German companies to invest and manufacture in India.
  • Japan-India Make-in-India Special Finance Facility: The fund aims to promote direct investment of Japanese companies and trade from Japan to India, including the development of necessary infrastructure.
  • Production Linked Incentive (PLI) Scheme: The PLI scheme has prompted major smartphone companies like Foxconn, Wistron and Pegatron to shift suppliers to India, resulting in the manufacture of top-end phones in the country.

Way Ahead

• India approved the construction of three semiconductor plants with investments exceeding $15 billion.
• This initiative aligns with India’s goal to bolster its semiconductor ecosystem and create numerous advanced technology jobs.
• The Mega Investment Textiles Parks (MITRA) scheme to build world-class infrastructure will enable global industry champions to be created, benefiting from economies of scale and agglomeration.
• The Ministry of Heavy Industries & Public Enterprises initiative of SAMARTH Udyog Bharat 4.0, or SAMARTH Advanced Manufacturing and Rapid Transformation Hubs,  is expected to increase competitiveness of the manufacturing sector in the capital goods market.